A flurry of activity surrounded metals prices today in what seemed like pre-Fed volatility. The shinies started the day up 2-3%, riding momentum from overnight trading. By early afternoon, though, gold had coughed up its gains while silver plunged, ending the day with a 3% loss. Despite the reversal, I expect any setback in metals prices at this juncture to be brief. A lot of people are finally believing the metals story, and, as with any market, many of them wait for pull-backs to jump into the fray. Therefore, sidelined money will provide a strong measure of support, and I suspect we will soon see another price surge as all the new money lines itself up for a spanking. Markets have a way of burning the most number of people possible, so we need the latecomers to get excited before we see the next significant pull-back.
The dollar swirled in its own drama, decisively breaking out of its month-long trading band to the downside. The drop now officially qualifies the high of November 16 as an inflection point. If recent history is to serve as any guide, equity markets will be peaking presently.
Tomorrow's Fed meeting promises to provide more volatility. While recent FOMC conclaves have been dull and predictable, the air is now thick with anticipation that the Fed will insinuate an end to rate increases. Whichever way the jargon falls, we are bound to see a torrent of activity as bets are re-aligned. Should the Fed signal a halt, which I have a small suspicion they will, the bulls will have a feeding frenzy. However, such a frenzy may mark an equity top much like the twin hurricanes marked an oil top. As we have seen so far this year, the fate of the dollar is more powerful than short-term rates with regard to equities, and a halt to rate increases cannot be good for the dollar.